Burberry upbeat on sales but warns on strong pound ahead of showdown over boss's pay deal

Burberry has warned that unfavourable exchange rates could have a 'material impact on profits' in the current financial year.

The pound has soared against other major currencies in recent months and the luxury clothing firm - which has extensive operations overseas - cautioned that retail, wholesale and licensing business might take a hit.

Burberry was nevertheless the top riser in the FTSE 100 in early trading today, after the City welcomed its announcement of strong quarterly sales with store revenues up nearly 10 per cent to £370million.

Declining footfall in its High Street
stores was offset by growing online traffic and a strong response to its
collect-in-store services.

The company said for the current year's retail and wholesale profit, effective exchange rates would now reduce reported earnings by about £55million and its adjusted operating profit margin would fall to around 16 per cent from 17.5 per cent.

Burberry added that it expected broadly unchanged revenue at constant exchange rates in both Japan and global product licences. However, it anticipated that reported licensing revenue for this year would be reduced by about £10million, given the movement in the sterling/yen rate.

Despite its warning over the impact of unfavourable exchange rates, Burberry shares lifted 2 per cent or 34p higher to 1,453p this morning.

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Christopher Bailey, chief creative and chief executive officer, said the company would 'continue to concentrate on the things we can control in an uncertain external environment'.

Bailey, who replaced Angela Ahrendts in the top job earlier this year, is facing abacklash over his pay deal at Burberry's annual meeting in London tomorrow.

He receives a £1.1million salary plus an annual allowance of £440,000 and a pension allowance of £330,000.

He also receives an annual performance-based bonus of up to twice his salary and is eligible to participate in a three-year executive share plan worth up to four times salary - or six times in 'exceptional circumstances'.

Burberry's annual report also disclosed that Mr Bailey would receive a one-off grant of 500,000 shares on his appointment, worth £7.2 million at their current value, to vest in phases between 2017 and 2019.

In his previous role as chief creative officer, he had previously been handed performance-based share awards due to vest between 2014 and 2018.

Further, Bailey had received grants of 1.35million shares due to vest between 2015 and 2018, worth £19.5million at current prices.

Income share watch: Burberry raised its total annual dividend by 10 per cent to 32p when it announced full-year results in May. The shares yield 2.25 per cent.

View from the City

'Today’s update is showing signs of blowing away some cobwebs from Burberry’s recent chequered history,' said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers.

'There are a number of strong figures coming from the statement, from the overall hike in revenues through to robust growth in the Asia Pacific - China in particular - and a creditable digital performance in the Americas.

'In addition, Burberry’s focus on the integration of its online and physical presence is beginning to reap rewards, with the fashionable trend remaining in the company’s favour.

'Less positively, the previously flagged currency headwinds are likely to prove a material drag on full-year profits, the sector remains notoriously competitive and, despite a progressive dividend policy, the current yield of 2 per cent is anaemic given the current interest rate backdrop.

'Despite this progress, the share price performance has been weak – prior to this morning’s spike, over the last year it had fallen 1.5 per cent as compared to a 3 per cent progression for the wider FTSE 100.'

Luxury brand: Burberry has extensive overseas operations which will be affected by the recent strength of sterling

Helal Miah, investment research analyst at The Share Centre, said: 'After a difficult period of transition, investors will be pleased to see Burberry’s first quarter underlying retail revenue at £370million, up 12 per cent compared to the same period last year.

'The company saw double digit growth in its Asia Pacific and American operations, as well as across all three main product categories. Digital sales also performed well in all regions.

'These numbers have been helped by strategies to engage with customers through the digital and fashion events and investors will be pleased to see four mainline stores have been opened in the last three months.

'We continue to recommend Burberry as a "buy" for medium risk investors. We expect the various strategies in place to help drive growth, along with the general improvement in the economic backdrop.

'However, as anticipated, the appreciation of sterling is having a dampening effect on the sales numbers and investors should be aware we expect this to be an issue going forward, especially for a company whose majority sales are not denominated in sterling.'

Alastair McCaig, market analyst at IG, said: 'Grumblings of discontent at new CEO Christopher Bailey’s remunerations at Burberry may be somewhat appeased, with the company’s announcement that its first-quarter sales were up by 12 per cent year-on-year, although currency headwinds look set to impact full-year profits.'

Stock watch: Burberry shares have made strong gains since 2009 but traded in a range during more recent times

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Burberry upbeat on sales but warns on strong pound ahead of showdown over boss's pay deal